By: Julian_DW_Phillips
The history and present of silver as money
In the past, silver has been used as coinage. Until the middle of the last century, most countries used silver in coins. Well before the U.S.A. and the I.M.F. cut the link between money and gold, silver was replaced with alloys in coinage. Take a look at the small change in your pocket and you will see a silver lookalikes. The human view of money is still that coins should look valuable, even if we are fooled by the alloy lookalikes. And that's the point. Will we as gullible humans believe that the money in our pocket has value?
We have to qualify the answer to that question by saying subject to economic conditions, yes. When you have nothing, bartering with anything for something is the simplest of monetary systems. When you are in the mainstream economically and economic growth is good, we are inclined to accept mainstream money in any form governments want us to. It makes trading easy. Take a look back at the years from 1985 until 2007 and you see a developed world growing steadily, happily and confidently. Money was trusted in any form it took because the system benefitted everybody. It's only when the person you are dealing with refuses to accept it as money that it then fails. Far from being global, like gold and silver have been throughout history, national money is valuable only locally, where it is legislated as the only acceptable means of exchange.
Imagine if I turned up at a shop and handed over a few hundred Dongs [from Vietnam] or a few trillion Zimbabwean dollars, [Aah, that's no longer money even in Zimbabwe], what would your shopkeeper say? It is this parochial nature of fiat money that will be its eventual downfall. Once the Yuan is a global reserve currency from a growing country with a massive presence, we will be able to choose between the Yuan and the U.S. dollar. Then what?
Take a silver eagle and offer it to a Chinese person--he will accept it readily. Even while the South African Rand is only useable in South Africa, the South African gold 1 ounce Krugerrand is exchangeable anywhere [at a price of $1,420 not its face value of 14.70 U.S. cents [1/10,000 times face value]].
Silver, throughout history has been accepted as money anywhere in the world. While central banks and governments refuse to allow its use as money inside their economies, they have not taken away from its value as a currency. Silver remains a form of unrecognized money even in the hands of people who have not used is as money for many generations.
Even today, when the fiat money systems are decaying, a trickle of people are protecting their wealth by selling their paper money for solid silver and gold. We are at the start of a trend that is inexorable. Even central banks have started buying gold and have ceased selling it. The trickle will become a flow. But silver is not yet in the same category as gold, as money [yet] in 'official circles'. It will have to follow the path blazed by gold, but not until gold is seen to be visibly used in the global money systems, will silver stage a comeback. Even then, it will always be a junior partner to gold. After all, its price is so low and the quantities available for this role so small, that it is too far away from being as practical a measure of value as gold is now. But imagine if it was priced at $200 an ounce, then its credibility as money would be legitimate. If one could have a ration of one ounce of gold to 50 ounces of silver, then investors would be comfortable treating silver as money.
But in the private and institutional domain, silver is already a protector of wealth. This should be the focal point of its use. The investing world, in regarding both silver and gold as a protector of wealth, can no longer be ignored. It is a fact through its performance all over the world. So can governments harness this present reality? Will they? We are of the opinion that they won't until they have to!
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http://www.marketoracle.co.uk/Article27444.html
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